ECMA04F - October 14, 2005 Briefly Explained Answers to First Term Test There were three versions of the exam. All were labeled “Version 1". To distinguish the three versions, you should look at the professors’ names. Correct Answers Version 1 (“Profs. Michael Krashinsky and Gordon Cleveland”): D K O A H B G K I N B H G J M Q H G H V D R I S B Version 2 (“Profs. Gordon Cleveland and Michael Krashinsky”): E J N H A N B G K I A F J G N H Q F V H F S S I A Version 3 (“Professors G. Cleveland and M. Krashinsky”): K D M G B I N B G K F A K H O I P H U G B T T J E Brief Explanation Q1-2 dY/dX = 0.5[400 - 4X 2 ]-0.5 (-8X) = -4X[400 - 4X 2 ]-0.5 To get opportunity cost of X, use -dY/dX To get opportunity cost of Y, use -dX/dY, or inverse of -dY/dX Q3: Plug in for Y, so U = X[400 - 4X 2 ] = 400X - 4X 3 Then set dU/dX = 0 for maximum. Q4-5: The business leader suggests we are inefficient, so we start at a point like A; he wants us to cut taxes to become efficient, that is, to move to a point like B or C. The newspaper columnist suggests we want more Y and less X, but does not suggest we are
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